"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Saturday, January 10, 2015

Large Speculators returning to Gold - but with this Caveat

Here is the latest chart detailing the relationship between the Hedge funds NET POSITIONING in the Comex gold market and the price of the actual metal.I have presented this chart for some time now over at my former website to rebut the silliness from the gold perma-bull camp that any moves lower in the price of gold are ALWAYS the result of "evil bullion banks working to suppress the price of the metal to discredit it". That mindset had a place at one time - back when the US Dollar was sinking - but is now passé and an extreme waste of precious mental effort and time. The camp that has this as a central tenet of their "faith" has long ago lost any credibility on this issue among serious-minded investors/traders.Gold has been sinking in price because speculators were simply not interested in it when better returns on precious capital could be obtained elsewhere (in equities in particular). An ultra-low interest rate environment here in the US, with no signs whatsoever of any inflationary pressure, in which global commodity prices were sinking lower while the US Dollar was moving higher was simply one in which it did not favor any serious appreciation in the price of the yellow metal. There was nothing the least bit "conspiratorial" therefore about a falling gold price, an asset which throws of no yield or dividend whatsoever and requires storage fees, insurance, etc. when holding it in any size. In other words, it COSTS to store gold when such money could be better put to work producing actual returns in equities.Now that there are some concerns about global growth and equities are looking a bit wobbly, gold is getting a bit of a look from some speculators who are cautious at the moment. This can be seen in the return of some hedge funds to the long side of the gold market at the Comex ( although I should note that the gold ETF, GLD, continues to display an amazing lack of interest on the part of big Western-based institutional buyers ).

The blue line shows the NET POSITIONING of the hedge fund community. The Red lineshows the gold price. As you can see, as the NET LONG Position has increased, so has the gold price. The two track each other EXACTLY.

Something I do want to note however that really stands out for me when I see this chart and analyze it in detail.Beginning in 2013, while the relationship between the gold price and the net positioning of the hedge fund community remained intact, something happened. Can you see it?From that point forward, the build in NET LONG positions by the Hedge funds HAS NOTresulted in successively higher gold prices. The opposite is the case. In other words, it is taking more and more buying by Hedge funds to move the price of gold higher but the end result is that the gold price is at lower levels than such levels of net longs would have taken it in the past.For instance, look at this week's net long level by the hedge funds. It is currently a bit over 106,000 futures and options combined. A similar level of hedge fund exposure to the gold market back in January 2013 had gold sitting above $1650!How to explain this ? Simple - While hedge funds have been recently expressing an interest in playing gold from the long side over the Comex, there remains a correspondingly increasing amount of WILLING SELLERS of the metal. To see gold sitting closer to $1200 than it is to $1700 when the net long positions of the hedge fund are at the same level as they were TWO YEARS ago tells me that a very large number of players in gold do not expect high prices in gold to last.This does not mean gold cannot and will not experience rallies. It is now currently in the midst of one which it taking it up to test resistance between the $1220-$1230 level. It might even be able to take that out and put in a test of $1250. But one does wonder how much buying it is going to take on the part of the hedge funds to really push this market to the point where it actually can do something the least bit exciting; not with this many willing sellers of the metal around.

Here is an intermediate term view of the metal (weekly chart). It has been able to keep aloft above the key $1180 level but thus far has not managed to even make it to the first level of chart resistance noted. Not especially impressive when viewed from this angle is it?As noted many times when discussing the prospects of this metal - just because a market has found a bottom does not mean it is about to embark on a wildly bullish tear higher. It can meander sideways in a broad trading range for YEARS. Until I see some signs of serious life in this market, I am simply not interested in it other than for short term trading purposes only.To the readers of this site and especially to those who continue to post here at the forum - please note that I have set in place a process that requires all posts to be reviewed prior to being posted. This is not so much an attempt at censorship as it is an effort to prevent the pestilential spammers from India which for some reason believe that they can use this website as a place to secure free advertising for their crap services. Those who do so, without at least having the common decency, moral integrity and professionalism to obtain my permission or even pay a small fee, deserve the scorn and contempt in which I hold these parasites.Thanks for your understanding with this. In the meantime, I would urge my loyal readers here and regular posters to come on over to the new site and give it a go. You are missing out on a great deal of commentary and hopefully valuable insight into what is taking place in the markets and more importantly, the WHY behind the moves in price.Also, it would be fun to have some of you long time posters contributing to any discussions at the new site as some of your contributions in the past have been very thought provoking and interesting.

62 comments:

Thanks for the update. You would think that gold might've caught more of a bid lately since oil has sold off because the capital sitting around that's not tied up in oil could've been put to work in gold at least a little bit.But that didn't really seem to happen and it tells me just how out of favor the metals really are with the public at large and the big, smart money.They're avoiding it for now.

Silver is just an afterthought at this point and is a forgotten metal these days. The May 2011 silver massacre and subsquent plunge to $16-ish has left an indelible bad memory (or a small fortune if they shorted it!) in many investors for years to come.

China's economy has certainly played a role in the dramatic fall of oil prices. Beijing could, however, benefit from the drop in multiple ways.

Anthony FensomJanuary 9, 2015

Plunging oil prices have sent shockwaves around the world, threatening to topple governments and bankrupt businesses even while U.S. consumers celebrate cheap gasoline.

Yet while rising supply has been largely blamed for the precipitous price fall, China’s lower demand growth and its long-term implications for the global economy have been largely ignored. Is Beijing a winner or loser from cheap oil?...(cont.)

I have been reading some of your recent posts. That you are making some sort of connection between QE and the price of oil eroding is a serious mistake.There are two oil markets - one for WTI And the other, which is the global benchmark, Brent crude.the Fed's WE does nothing for the economies of Europe, Japan, or China for that matter. Those economies are slowing and have been for some time. The problem is one of excess supply and insufficient demand. It is a simple supply/demand issue.Why you keep trying to blame this on the cessation of the Fed's QE is a mystery to me. Did you not read the statement out of OPEC on Thanksgiving Day or the subsequent statements from the oil ministers of the other OPEC nations? Did you not read the statement from the oil minister of Russia?The connection you are imagining between the Fed's QE and falling global oil prices is imaginary.

could it be because tightening the reserve currency will first dry up liquidity in the emerging markets and international investors will seek refuge in the US capital markets, driving up the dollar and pushing down commodities?

But most importantly, an omnipotent Fed which now has complete control of all financial markets and can change the direction of interest rates, stocks, and commodities on a whim with the mere utterance or threat of doing something.

Why own gold which has under performed for 3 years running, when you have seen once in a lifetime gains in these stocks?

Home Depot $15 to $110Lowes from $12 to $70Sherwin-Williams from $30 to $170Bristol Meyers from $15 to $60Cigna $13 to $109Biogen $36 to $340ULTA Salons $4 to $130Under Armor $3 to $65Buffalo Wild Wings $30 to $180

Everyone said that the consumer was toast, Obamacare would sink the economy, and we would end up with hyperinflation. Yet the exact opposite happened, as we are in the midst of the greatest consumer spending orgy every recorded and Obamacare turned out to be one of the biggest profiteering bonanzas for the health care sector ever.

And don't even get me started on the currencies and oil. The leveraged speculators who used 200:1 margin just scored a lifetime worth of gains in just 6 months, seeing the biggest, fastest, longest currency moves and energy collapses ever seen.

Anyone who shorted the Euro, shorted oil, and went long the U.S. Dollar made a life's fortune in a futures account.

Good thing I stayed in the system, didn't get bamboozled by all the dire predictions, and kept an upbeat attitude towards life and trading.While the poor Bluehairs who attended all those Q & A sessions got sucker punched and ruined their retirement prospects.

The last man laughing though is doomer king Tyler Durden, who miraculously fed fear and hysteria into the millions of hedge fund managers and singlehandedly caused 90% of these guys to underperform the market. At the same time Durden successfully built a huge advertising platform to feed off the fears of all those losers still claiming that "any minute now, I swear, its all gonna blow".

Eric King has all but given up on operating a credible website, and has now resorted to luring in all the Rense.com and gold cult followers who now visit there to look at all the seedy ads featuring skimpy dressed women and shocking hysterical predictions.

Exactly correct - investing/trading is all about reading the tape correctly and following the money flow. It has NOTHING to do with some dogma or cultish mentality. Gold has been in a bear market ever since it broke down below $1535-$1525 years ago and yet the gold hucksters keep repeating the same old thing, same old predictions, same old fear mongering, etc.

We all know that FEAR SELLS and the ONLY ONES who make money off of it are not those who drink in that Kool-Aid but those who peddle it, like the Zerohedges of the world, for example.

What a racket that guy has going. The market can look at a report and move higher and yet that fear-peddling site comes out and proclaims how WRONG the market is. In other words, in Zerohedge's world, the market is always wrong and only the fictional Duren is correct. That is always the methodology followed by a losing investor or trader.

"All those guys making money by correctly following the flow of money are wrong and only I am right" is Durden's motto. "Follow me and I will be sure to lead you to your financial ruin: is his corollary.

What has always amazed me as long as I have been doing this is how many people keep following that clown and paying the least bit of attention to him. In a world in which people actually learned from their mistakes and bad choices, his site would have been shut down long, long ago.

I agree with both of you on asset allocation regarding gold and I didn't mean to imply that the oil capital should've or could've been put to work in gold. Maybe it read that way and it sounded like an ex-'bug comment. ;-)

My point was that I can clearly see why huge amounts of ex-oil (long) capital didn't noticeably flow into the metals. Bad sign for the metals.

KWN seems to be the goto place for Jim Sinclair when he takes 15 minutes every other day to repost some garbage while he is busy running his company into the ground. What a snake oil salesman that guy is turning out to be.

What will be interesting and possibly quite bullish for gold is if the soaring $US starts to cause some serious derivative failures due to the dislocation in currency exchanges rates. Somethings gotta start giving I think.Silver may be an afterthought but some of the silver miners have been outperforming lately with First Majestic in particular.

And as for China, well, they are today's late 80's Japan, as I have said for years now. Who do you think owns cotton @ $2.20, copper @ $4.40, and gold at $1900. Talk about the early stages of an economic collapse. Only 3 bull mkts as I see it, $, stks, and yes, still bonds. Take care all.

Never say never.The Prince fails to take into account what happens when King Abdullah passes on.~¤~¤~¤~¤~¤~¤~¤~¤~~¤~¤~¤~¤~¤~¤~¤~¤~¤~¤~

~Saudi prince: $100-a-barrel oil 'never' again~

Maria Bartiromo for USA TODAY44 minutes ago

Saudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit...(cont.)

Britons and Canadians were the biggest foreign investors in U.S. stocks, each accounting for 12%, while Japanese investors checked in at 6%. Another one-third were from tax havens such as Luxembourg, Switzerland, and the Cayman Islands.

In 2015, net foreign inflow of funds into U.S. equity is expected to hit $125 billion, up from net $103 billion in 2014. That compares to total net equity inflow of $220 billion projected for 2015 versus $178 billion last year.

U.S. investors are also likely to step up investment in foreign stocks to the tune of $250 billion this year versus $231 billion in 2014. Americans favored European (excluding the U.K.) and Caribbean securities...(cont.)

On other topics, I'm still a long ways from bottom fishing in XOP or XLE. Plenty of pain still to come there.

Bigger picture, why, as a confirmed trend follower, would I even consider a bottom fishing expedition in oils, when I would never (again) consider such a thing in miners?

Answer: Because many oils are run by competent, non-charlatan managements, in an industry with a future, producing a commodity that people actually need, and most with at least some kind of dividend. At some point, the concept of "value", can be considered.

None of those attributes apply to precious metal miners.

Bottom fishing goldbugs are licking their chops about miners (though they've been doing the same since double the price).

I'm licking my chops about oils. This oil crash could be the biggest opportunity in years. But no pulling the trigger yet.

I agree about the potential opportunity when it eventually turns around. The RUB will be greatly affected at that point also.The thing I'm looking for is a change in SA sentiment eventhough I also realize there's some deflationary pressures (along with a supply glut) that need to be taken into account as well.

I wrote a fairly long post on this topic several days ago in the last thread and it didn't get posted for whatever reason. Oh well :-/

These folks like bankers make money on leverage and the spread between long and short term rates. If people think that the net net of the spreds after the interest rate increase is positive for earnings then up they go.Alternatively, they delayed rate increase means more quarters of some pretty luscious dividends.

I don't know what or when it will happen and fear the so called smart money doesn't either. They are so wrong on a number of positions right now.

It's pretty incredible watching oil chunk it's way lower in big bites at this point.WTI just hit a low of $45.62 on my screen.I thought once we hit $50 it might hover around that round number for a little. It hardly hesitated and we're staring at $45...and it's only Monday! :-o

At some point it has to slow down. My guess would be $35-ish and I'd be shocked if it broke $25 or lower.

Can I ask you a simple question? Why do you waste your valuable time reading any of the trash that the site you referenced publishes? All you are doing is continuing to keep them in business.He is blind guide leading his blinded followers down the path to financial ruin so that he can make a living peddling claptrap that passes for something of value.

It's like some type of alternative reality over there. It's a morbid habit I guess I need to shake when quickly clicking around some old haunts I guess.But I'll follow your subtle hint and stop linking there. :-)

I really don't think that's a danger, Dan. When he decided to shut down all comments from non-subscribers, that demonstrated unambiguously that page view revenue is a pittance. Traffic there has dropped by 80%-90% easily. His business model is reliant on subscriptions, and those have long since peaked. The comment counts on his articles have been declining steadily and are at new lows every week that passes. The fate of TF metals is sealed, he's just squeezing the last few drops of blood from the turnips that are his long term readership. It's pathetic to see how banal and repetitive his schtick has become, now that he knows that everyone there will follow him unquestioningly into oblivion.

It's not that morbid to want to see how it's demise unfolds. I check in periodically, and find it to be an illustration of some fascinating facets of human psychology.

“This is a question of TIME more so than price. Keep in mind that the amount of capital contained in the bond markets is at least 3 times that in equities. If we see the Bond Bubble in 2015.75, then the capital pouring out of bonds will be like the 1929 Stock Market Crash. That money will then flow outward. This is when we will see the greatest potential for a rise in equity and YES we should see the turn in all tangibles including gold.”

MarketBull; I have been trading this bond sonofabitch since Day 1 and am in total agreement with the bubble idea. Whenever we find top I do not know, as I thought Dec '08 was it. It will be one helluva lollapalooza though and that is for sure.

MB, that article is quite interesting and I hope I’m able to read between the lines to understand exactly what Martin Armstrong is trying to convey.

Within that same article Armstrong replied to the Question being asked by saying,

“The rising dollar puts further pressure on oil and gold….A decline in oil prices will shift the world to a different new order….sorry, but it is world capital flows of investment that far outnumber trade flows.”

Hi Steve and Shem, I think the Fed saved the markets in 08, but now that the Fed tide is going out we have deflation winning again and a run into bonds, as perhaps investors realize this recovery is being held up by not much more than debt and QE over the years.

The Potemkin village created by the central banks as they say.

Armstrong seems to be saying once the huge run up in sovereign bonds ends, the capital outflow from these bonds will be massive, driving other assets like equities to highs way beyond where they are now.

Think I read Armstrong say as high as Dow 40,000 if these bond bubbles burst.

The rising dollar will make emerging markets sovereign debt fail first is Armstrong's theory I believe.

kjm:Someone should inform ECB governing Council Member Ewald Nowotny that Mr. Stockman thinks he is full of crap.Just today ( Monday) the ECB official noted that the "ECB" should not wait too long" do deal with the Eurozone's low inflation rates.He did state that he did not believe that the Eurozone is not in a deflationary period yet but he felt the ECB should "act sooner rather than later".Apparently Mr. Stockman believes Nowotny is a liar.I think Stockman is trying to find some way to pay his bills and believes he has found a way. I have as much regard for him as an expert on the global economy as Paul Craig Roberts and that is not saying much!

kjm;apologize for the typo in the above comment I posted for you. ECB member Nowotny does not believe the Eurozone is in a deflationary crisis. I wrongly used TWO NEGATIVES! I need to go and get some sleep!I just posted a new article over at my main site noting that the yield on the 5 year JGB hit ZERO this evening!

Thanks for the response.....I have read some of Stockmans articles that seem to be well thought out and make sense but wasn't sure where he was on the credibility ladder. Here is the link to the article

Back from a 2 day trip to close my account in my armenian bank. The one that allows a 10% return per year on your dollars deposits...until it gets bankrupt if it played too much with the carry trade on their local currency.

Regarding Dan's site, I think it's a gold mine, but personally I am too busy at the time to subscribe, and I'm trading with a very small account even when I'm free, making only little money as it is not my main activity; For those who want to learn how to trade and make a living with it someday, I'm sure the subsciption is 100% worth it. Still, I would continue to post my contents on the free website, as I am not a trader myself, and want to share information for free with other bloggers first of all.So, as long as this website is given to us as an altenative to post for free, I will keep doing so when time permits.Take care all,

dfly; maybe I am fos, but I think the die is cast for the Euro; it is difficult to ignore the ongoing daily noise, but if you trade light enough, it can be done. Look at the long term monthly charts and I would think that a solid close south of 1.20 at the end of Jan will start the acceleration towards where this abomination bottomed at .80. We shall see.

I'm watching mainly the weekly and monthly time units, with the daily being the tactical short-term signal to see if we'll have a change of trend.On a weekly time unit, 1.16 to 1.18 is a very thin area, and we can bounce here or there, it's the same, I'm not trying to guess with more accuracy what will happen within this area.At the moment, I keep having strong bearish config, but with still the possibility that we start a quick bounce from 1.16-1.18.So...the daily time unit will warn me about that first, with a divergence on the MACD for example, if prices keep dropping under 1.17. I'll keep you posted with a chart if time permits.Good trades,

P.S : we can bounce at any time on the daily time unit, first towards 1.20 (ma20) to 1.21 (previous support of descending wedge i.e pullback towards it), then 1.23 (ema 15 weekly time unit). The 4 hour time unit shows horizontal bollingers near 1.8880 for the upper one, so a stop loss of my remaining 50% short position could be around 1.19. The first 50% I already sold at 1.1760.

That's what happens when the mlh inf of the Andrew's fork - daily time unit gives way : acceleration...spot on towards the median...of the Andrew's fork - weekly time unit :)Use Andrew's forks sometimes as a trading tool :)

Gold : totally out of the market at the moment, bollinger bands are converging on the motnhly and weekly time scale...decreasing volatility, not much to do, prices can go anywhere on the daily time scale, and remain within the converging bollinger bands of the higher time units...bof, it's russian roulette, and I don't like it. So I'm out (which IS a trading position :))

Stocks down, then up, then down, then up. Everybody still trying to sort it all out. I think it means that the Swiss saw that Draghi's QE is going to be much bigger than they could cope with. To me that sounds like up with stocks, but it remains to be seen.

Interesting that just a couple of months ago the SNB was opposed to the Swiss Gold Initiative in part because it would cause the CHF to rise. Does the SNB know something we don't?.... Or is this just a preemptive move in anticipation of QE?

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About Me

Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found.
He is also an avid beekeeper.

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